Editorial: Another bad sign for higher education

By The Washington Post

Wednesday, February 6, 2013

There's more startling news about the impact of expensive tuition and poor job prospects on higher education. According to the Law School Admission Council, the nation's 200 law schools project just 54,000 applications for fall 2013 -- a decline of nearly half since 2004. It's the clearest indication yet of legal academia's busted business model. For decades, law schools have invested in expensive but underutilized buildings, faculty and administrators, all in the pursuit of excellence as defined by their accrediting body, the American Bar Association. They passed on the costs to students, who paid with borrowed money, confident that law school was a ticket to a high-paying job. Now those jobs are scarce, and the debt-driven law school "value proposition" is in trouble.

This trend is cause for concern not so much for what it portends in the legal profession but for what it may mean for all colleges and universities. Professional schools have been a modest net contributor to affiliated university revenue, so their plight affects undergraduate education.

More important, the law-school business model is an exaggerated version of all higher ed. If colleges and universities can't control costs, they could experience the same downward spiral as law schools. The United States may get along with fewer lawyers, but future workforce productivity depends on a vibrant higher-education sector.

Alas, recent data on that front suggest that colleges and universities are barely beginning to face the new realities. On Jan. 16, Moody's Investors Service issued a "negative outlook" for U.S. higher education. It cited sluggish revenue growth on account of increased tuition sensitivity on the part of students and their families -- and increased reluctance to incur debt to pay for college -- as well as state budget cutbacks and the rise of online learning alternatives.

College is still a good deal, Moody's notes; graduates of four-year institutions are more likely to find work, and to earn more, than their less educated peers. Though burdensome, student debt remains concentrated in a relatively narrow slice of the population. In a stagnant economy, however, public perceptions of college's costs and benefits are shifting in a skeptical direction. (Full disclosure: Moody's has also issued a negative outlook on the for-profit sector of higher ed, which includes The Washington Post Co.'s Kaplan Higher Education.)

With endowment earnings and government funding uncertain, the best way for institutions to regain their customers' confidence is to hold the line on tuition. To do that they must cut costs. So far, most institutions have tried one-time fixes, not structural reform. Moody's says they must address "the entrenched cost drivers of the business model": heavy faculty involvement in governance, inefficient classroom instruction, tenure and lavish amenities -- "student life services," as they are known. Taking on such sacred cows will require "strong leadership," Moody's observes, and could trigger institutional conflict. But the alternative may be institutional decay.